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Skip-the-Ads TV Has Madison Ave. Upset

Digital successors to the VCR that eliminate the frustration of recording television programs have crossed a popularity threshold, raising alarm among advertisers and TV executives who see the devices as a threat to the economics of commercial television.

Digital video recorders, or DVR's, make it so easy to program and play back shows -- they do away with videotapes by storing 30 hours or more on a hard disk -- that their owners often choose to watch what is on the machine rather than what is on TV. Ignoring the networks' painstakingly planned schedules, they watch prime-time programs late at night and late-night programs before dinner, often oblivious to the channel on which it originally appeared.

They also see fewer than half the commercials they used to, compressing hourlong shows into 40 minutes as they fast-forward through the advertisements that the television industry has long depended on to pay for its programming and profits.

One in five people who own a DVR like TiVo or ReplayTV say they never watch any commercials, according to a recent survey from Memphis-based NextResearch.

''The free television that we've all enjoyed for so many years is based on us watching these commercials,'' said Jamie C. Kellner, chief executive of Turner Broadcasting. ''There's no Santa Claus. If you don't watch the commercials, someone's going to have to pay for television and it's going to be you.''

But such admonishments appear unlikely to sway DVR owners. By recording the shows they know they want to see, many say they have escaped the scourge of channel-surfing and the empty sense of wasted time so often associated with watching TV. Although sales of DVR's are still small compared with those of other home entertainment devices like DVD players, analysts say the remarkable enthusiasm they inspire makes their broad adoption only a matter of time.

''I can do e-mail and I can go on the Internet but I've never been able to program the VCR,'' said Kay Friedman, 66, of Morton Grove, Ill., a TiVo owner who takes special delight in waiting until 9:20 to watch ''The Practice'' on Sundays so she can skip through the commercials even as it records. ''I'm hooked.''

Dismissed until recently as too expensive and complex for the average consumer to set up, DVR's are now a fixture in more than a million United States households -- about 1 percent of the total -- a number expected to grow to 50 million over the next five years, according to Forrester Research. Fueling the growth are cable and satellite companies, who plan to build DVR features into their set-top boxes, greatly simplifying the set-up process. Cox Communications, Time Warner and Charter Communications have already announced plans to make these services available to consumers later this year.

TiVo, which markets its own DVR and licenses its service to others, costs $300 to $400, plus a $12.95 monthly fee. Sonicblue's ReplayTV 4000 costs $699 for 40 hours up to $1,999 for 320 hours of storage; the company said it expected sales to increase when it introduces a lower-priced machine later this year.

The television industry has known about DVR's for years, of course. But as the popularity of the digital technology begins to undermine many of the basic assumptions that have governed the television business for decades, broadcasters, cable programmers and advertisers are scrambling both to resist and to adapt to people who can rearrange schedules and skip commercials at the press of a button.

''You start losing marginal dollars when people who you thought you were buying are not viewing,'' said Daniel Jaffe, executive vice president of the Association of National Advertisers. ''This is not just a theoretical problem that might be happening somewhere down the line. This is happening now.''

Some advertisers are re-evaluating their buying strategies and demanding new ways of measuring audiences. Steve Sternberg, director of audience analysis for the advertising firm Magna Global USA, circulated a memo recently that asked, ''If an advertiser buys 'NYPD Blue' on Tuesday night, and 10 percent of its audience watches it on Friday after midnight, should that audience be given equal value as the 'live' prime- time audience?''

There is an important distinction, Mr. Sternberg said, between ''zipping and zapping'': ''When people switch channels, they are going from something to something else. There are losses for one channel, but gains for another. With fast-forwarding there are only losses.''

Others are trying to turn the technology to their advantage. Coca-Cola has paid for advertising that appears on the screen of a ReplayTV user when a viewer pauses a program for more than a few minutes. Last week, Best Buy announced that it would embed electronic tags visible only to TiVo users in 30-second commercials featuring the singer Sheryl Crow it is running on MTV. Viewers can click on an icon to see 12 additional minutes of the Best Buy ''advertainment,'' while TiVo records the continuing MTV programming so they can watch it later.

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''We need to start to understand how we're going to have to reach our consumers with this new technology,'' said Mollie Weston, a product manager for Best Buy's image advertising. ''It is going to force us to put advertisements out there that people are actually going to choose to watch.''

Indeed, advertisers take heart in data from TiVo that showed its viewers fast-forwarding through this year's Super Bowl and using the instant replay function for the Britney Spears Pepsi commercial more than any other segment besides the winning field goal.

Because DVR's are connected by a phone or high-speed Internet line from a viewer's home to a central server to get program schedules, some advertisers envision downloading commercials aimed at individual people based on information from databases compiled through other sources. Members of Purina pet clubs might get pet food commercials, for instance, while the owner of a BMW lease that is about to expire might get an advertisement on the automaker's new convertible.

''There's a lot of things that are going to start to change,'' said Ira Sussman, director of research for Initiative Media North America, an advertising buyer whose clients include Maybelline and Home Depot. ''We're going to have to start thinking more about the importance of product placement within programs, placing more relevant, highly targeted messages. But we see it as a glass half full.''

His research reflected a less rosy picture for the television networks, however. ''We've found people recording programs and watching them on their own time are often not realizing what network they're coming from anymore,'' Mr. Sussman said. ''That's a real brand equity that might be lost on the networks' part, if you're trying to put something next to 'Friends' but no one's watching 'Friends' live.''

Much of the television industry's response to the new technology so far has focused on a lawsuit that seeks to ban the sale of the newest version of ReplayTV, which allows its customers to set it up to skip commercials on playback automatically, without even requiring them to fast-forward. The machine also allows its owners to send shows to each other over the Internet.

A group of media companies including Viacom Inc., the NBC television network, the Walt Disney Company, AOL Time Warner Inc. and Twentieth Century Fox has asked a federal court in Los Angeles to stop Sonicblue from selling the device, saying it contributes to copyright infringement. To win, they need to prove that the machine is fundamentally different from the VCR, whose distribution was upheld by the Supreme Court in 1984 after a similar challenge by the entertainment industry.

Lawyers for the companies now argue that the court's endorsement of consumers' right to ''time shift'' television programming in the 1984 case was based on the assumption that copyright holders would not suffer significant financial damage as a result. Over the protests of privacy advocates, they are demanding detailed information about which shows ReplayTV owners record and which commercials they skip.

Sonicblue's chief executive, Ken Potashner, concedes that on average ReplayTV users skip more than half the commercials. But he says it is up to the networks and advertisers to come up with creative ways to persuade viewers to watch. The ReplayTV machine records all the commercials, and users must choose to set it to skip them automatically on playback. They can always reset it if they choose.

''What are they going to attack next, the mute button?'' Mr. Potashner said. ''We've provided an efficiency improvement for a consumer who is compelled to skip a commercial. What they should do is work with us.''

A victory in the companies' case against Sonicblue will not stave off the fundamental shift in culture undermining their business, industry analysts say. Consumers have embraced digital technology that allows them the greatest flexibility in the way they shop, communicate and consume all kinds of media -- and it is not likely to be different in TV.

''We've trained people that you can buy things at 3 in the morning in the nude on the Internet and make a call to anyone from anywhere on a cellphone, and the idea that CBS is going to determine when I watch 'CSI' flies in the face of that trend,'' said Josh Bernoff, an analyst with Forrester Research. ''TV networks are going to have to figure out how to make money from a TV viewer that is not nailed to the chair waiting for the commercial to end.''

If it is good enough, even dedicated DVR owners can still be tempted to watch live television, complete with its inconvenient interludes. Chad Little, a ReplayTV owner who started a Web site called Planetreplay.com, where viewers can trade with each other, regularly records about 10 shows, including ''Junkyard Wars,'' and ''Everybody Loves Raymond.'' Sometimes he makes an exception:

''Buffy,'' Mr. Little said, referring to the vampire slayer. ''There's times I'll watch it straight through with commercials and everything.''

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A version of this article appears in print on May 23, 2002, on Page A00001 of the National edition with the headline: Skip-the-Ads TV Has Madison Ave. Upset. Order Reprints|Today's Paper|Subscribe